Into Retirement

6. A limited one-year exemption from the work test for Voluntary Super Contributions

Retirement and the Age-Pension

7. New Age-Pension means-test rules for lifetime income streams

8. Expansion of The Pension Loans Scheme. Currently this scheme is only available to part Age-Pensioners, this will be extended to include full Age-Pensioners and self-funded retirees

9. Expansion of the Age-Pension Work Bonus to allow pensioners to earn more without reducing their Age-Pension

Importantly, last night’s Budget did NOT contain any major changes to the way superannuation is taxed or any changes to the Concessional or Non-Concessional cap limits on contributions.

The timetable to increase the SG rate to 12% was also left untouched, with the next increase from 9.5% to 10% scheduled to occur in 2021.

Read on for a more detailed summary

For super members

1. Changes to default life insurance in superannuation

The Government is proposing to change the insurance arrangements for certain groups of people. Insurance within super will move from a default opt-out framework to an opt-in basis for people under 25 as well as those with low balances and inactive accounts.

Under the proposals, all super accounts that have not received a contribution for 13 months will be classified as inactive. Accounts with balances of less than $6,000 will be classed as ‘low balance’.

These proposals aim to protect the superannuation balances of these members from being eroded by insurance premiums, but may lead to higher insurance premiums for other members.

Importantly, affected members will still have the opportunity to opt-in to insurance cover if they choose to do so.

The changes are proposed to take effect on 1 July 2019, affected members will have a period of 14 months to decide whether they will opt-in to their existing cover or allow it to lapse.

2. Transfer of all low balance, inactive accounts to the ATO

In a bid to prevent people with multiple super accounts from having their savings excessively eroded by fees, the ATO has been given the power to actively reunite Australians with their lost and inactive superannuation.

Under the proposals, all super accounts that have not received a contribution for 13 months, with balances below $6,000, will be classified as inactive and transferred to the ATO. These are typically accounts belonging to young members, low income earners and seasonal workers.

The ATO will then use data matching to automatically consolidate these accounts with members’ active super accounts.The Government expects the new system will reunite $6 billion of superannuation with up to 3 million members in 2019-20.

The changes are proposed to take effect on 1 July 2019.

3. Capping fees and banning exit fees

The Government has proposed two new measures to tackle the impact of superannuation fees on member balances and make it easier for members to consolidate their accounts. It will abolish super fund exit fees and cap certain types of fees on balances of less than $6,000. The Government has estimated the fee cap on low balances will return $570 million to super fund members.

The changes are proposed to take effect on 1 July 2019.

4. High income earners protected from breaching contribution limits

High income earners with multiple employers will be protected from inadvertently breaching the annual super contribution limits. Individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from SG.

Under current rules, individuals earning more than this amount from multiple sources face a tax bill if they contribute more than the annual $25,000 concessional contribution limit.

The changes are proposed to take effect on 1 July 2018.

Into Retirement

5. New retirement income product framework

The Government has proposed introducing a new framework for super funds to develop retirement income products. This will include a ‘retirement covenant’, requiring trustees formulate a retirement income strategy for superannuation fund members. Trustees will be required to offer Comprehensive Income Products for Retirement (CIPRs)—products that provide income for life.

The framework will also introduce a requirement for super funds to report simplified, standardised metrics in product disclosures to assist customer decision making.

No commencement date has been indicated for this measure.

6. Contributions Work Test exemption for recent retirees

Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.

Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who self-report as working a minimum of 40 hours of paid work in any 30 day period in the financial year.

The work test exemption will apply from 1 July 2019 and is intended to give recent retirees additional flexibility in the transition to retirement. Existing Contribution Cap rules will continue to apply.

Retirement and the Age-Pension

7. New Age-Pension means-test for lifetime income streams

From 1 July 2019 new Age-Pension means testing rules will be introduced for pooled lifetime income streams. The rules will assess a fixed 60% of all pooled lifetime product payments as income, and 60% of the purchase price of the product as assets until age 84, or a minimum of 5 years, and then 30% for the rest of the person’s life. This will mean people using these products will lose less Age-Pension entitlements.

8. Expansion of Pensions Loans Scheme

The Pension Loans Scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home to boost their retirement income. The Scheme – administered by Centrelink – is currently only open to retirees who are eligible for a part Age-Pension and is not widely used.

The Government has proposed extending the Scheme to all retirees, including full rate Age-Pensioners and self-funded retirees.

9. Expansion of Pension Work Bonus

The Pension Work Bonus allows pensioners to earn up to $250 each fortnight without reducing their Age-Pension. It will be expanded to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments.

The Pension Work Bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year, without reducing their pension payments.

The Government expects 88,000 people to take up the option to work more as a result of these changes.

Remember that proposals may change or be withdrawn as legislation passes through parliament.